Canoro Resources Ltd.
TSX VENTURE : CNS

Canoro Resources Ltd.

November 27, 2008 17:21 ET

Canoro Achieves Sixth Consecutive Quarter of Production Growth

CALGARY, ALBERTA--(Marketwire - Nov. 27, 2008) - Canoro Resources Ltd., (TSX VENTURE:CNS) is pleased to announce its financial and operational results for the three and six months ended September 30, 2008.

Second Quarter Highlights

- Production more than tripled to a record 923 barrels of equivalent per day ("boe/d"), marking the sixth consecutive quarter of production growth;

- Generated funds from operations of US$1.8 million;

- Successfully drilled Amguri A-12 well;

- Exited the quarter with a strong balance sheet having zero debt and working capital of US$24.8 million; and

- Finalized negotiations with Essar Group to obtain 30% participating interest in two exploration production sharing contracts in the state of Assam in Northeast India.

Subsequent to Quarter Highlights

- Amguri A-14 well successfully flowed gas from the Tipam formation on a short duration production test;

- Successfully worked over Amguri A-5 well from the Barail zone to flow at a combined rate of 265 boe/d;

- Strengthened the Board of Directors with the addition of two new directors, James N. Smith as an independent UK-based director and Robert S. Wynne as Calgary-based director; and

- Initiated the procurement process to have compression installed in the Amguri field.

Financial results

The table below, "Financial and Operating Results," provides a summary of the Company's financial and operating results for the three and six month periods ended September 30, 2008, and the same period ended September 30, 2007. For the periods ended after March 31, 2008, Canoro has begun reporting all financial information in US dollars and has translated and restated the September 30, 2007 numbers, which were previously reported in Canadian dollars, to reflect the change in reporting currency. Consolidated financial statements with management's discussion and analysis (MD&A) are now available on the company's website (www.canoro.com) and will also be available on the SEDAR website (www.sedar.com).



FINANCIAL AND OPERATING RESULTS

Three months ended Six months ended
September 30 September 30
($ thousands, except per unit % %
amounts) 2008 2007(1) change 2008 2007(1) change
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Natural gas (mcf/d) 3,810 1,210 215 3,771 1,159 225
Crude oil (bbl/d) 288 93 208 285 89 219
Total (boe/d) 923 295 213 914 283 223
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Realized gas price ($/mcf) 2.32 2.12 10 2.36 2.14 10
Realized oil price ($/bbl) 120.60 85.35 41 126.09 81.91 54
Nigerian Bonny Light ($/bbl) 119.52 71.47 67 122.26 71.33 71

Realized price ($/boe) 47.23 46.14 2 49.12 38.90 26
Royalties ($/boe) 4.50 1.44 213 4.77 1.40 241
Operating costs ($/boe) 3.93 5.19 (24) 4.14 6.32 (34)
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Netback ($/boe) 38.80 39.51 (2) 40.21 31.18 29
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Funds from operations 1,848 371 398 3,413 120 2,744

Capital expenditures 7,898 138 5,623 14,486 5,009 189
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(1) Restated in United States dollars from the previously reported Canadian
dollar amounts.


Operational Update

During the first half of fiscal 2009, Canoro Resources Ltd. ("Canoro" or the "Company") focused its efforts on two key areas, (i) the Amguri field development, to accelerate production from the field, and (ii) finalizing business development projects.

Significant progress was made in the first half of fiscal 2009 on the appraisal and development activities in the Amguri field. The Amguri infrastructure was designed and three appraisal wells were drilled in fiscal 2009 to evaluate four potential prospective zones. Two of those wells are currently awaiting completion and a successful work over was completed on an existing shut-in well.

Amguri A-12 was successfully drilled at the end of Q2, 2009 encountering 41 meters of net gas pay in two zones based upon log analysis. This appraisal well was drilled to a total depth of 3,972 meters targeting the Barail Main Sand, Mid-Barail Sand and Basal Sandstone formations. The well entered the target Barail Main Sand at a depth of 2,863 meters and encountered gas bearing sands with an anticipated pay column of 49 meters of which 31 meters is anticipated as net pay based upon log analysis. The zone will be tested after testing the Mid-Barail Sand. The well subsequently entered the target Mid-Barail reservoir at a depth of 3,027 meters and encountered gas bearing sands with an anticipated pay column of 21 meters and a net pay of 10 meters based on log analysis. Testing is ongoing. The well further entered the target Basal Sandstone reservoir at a depth of 3,805 meters. Three zones were perforated and flow tested. An estimated flow of 500 mscfd was encountered plus water, thereby proving good reservoir and an existence of a trap. Even though Canoro was unable to achieve commercial production, the Company considers this test a validation of the Basal Sandstone as a viable exploration target as this is the first indication of hydrocarbons being produced and tested from the Basal Sandstone Sand. Based on these encouraging results, the Company's future plan includes a well located west of A-12, to be drilled to basement and placed into higher priority in the upcoming drilling schedule.

The Amguri A-14 appraisal well was drilled to test the upper Tipam Formation and the well entered the target Tipam reservoir at a depth of 1,763 meters. It encountered gas bearing sands over an interval of 17.5 meters with an estimated net pay of 15 meters based on log analysis. Testing on this section yielded 1.2 mmscfd on a 12/64ths choke with a tubing head pressure of 2,100 psi on a short duration production test. The rig is being moved to another location at which time extended flow testing will be conducted. The results of this well re-establish the Tipam Sand as a productive zone. This discovery allows the Company to investigate the potential of cycling Tipam gas for enhanced liquids production from the Barail Formation.

Amguri A-5 was successfully re-completed and will be returned to production by the end of the year following completion of a single well battery. A work over was successfully conducted on this well resulting in reduced water production. The well flowed at a final test rate of 265 barrels per day of oil and 50% water cut on a 16/64ths inch choke.

The continued drilling success demonstrates the productive capabilities of the Amguri field and allows the Company to move towards a compression and field injection scheme to maximize cash flow and reserve recovery in the Barail formation. Discussions have been held with the Government of India ("GoI") development unit with a view to commencing full field development of the Amguri gas condensate field in which the Company has a 60% working interest and is the operator. Canoro plans to submit a Field Development Plan in Q3 with the aim of installing compression and gas re-injection, and to facilitate the design and construction of a gas plant that will process the liquids-rich gas from the field. With the prevailing high demand for energy in India, higher natural gas production, compression and field re-injection is expected to result in higher liquids production and add material additional revenue and production to the Company.

Business Development

Canoro completed farm-in arrangements with the Essar Group (previously announced September 3, 2008) on two blocks in Northeast India. Blocks AA-ONN-2004/3 and AA-ONN-2004/5 have a combined area totaling 1,285 km2 and are subject to GoI approvals. Canoro will have a 30% participating interest and will be the operator of both blocks. Initial exploration of these blocks is anticipated to commence in fiscal 2010.

Appointment of additional directors

Following the Company's Q2, 2009 board meeting, two new directors, Robert S. Wynne and James N. Smith, were appointed. The current Board of Directors of the Company is now comprised of:

- Douglas Martin, Chairman of the Board

- Harley Winger,

- John Boyd,

- Jeff Clark,

- Nolan Blades,

- James N. Smith,

- Robert S. Wynne, and

- Les Kondratoff, President and Chief Executive Officer

Mr. Robert S. Wynne, BSc. (Mech Engg) MBA, is a Calgary resident and a senior level international investment banker and corporate executive. He has 28 years experience in the oil and gas industry and investment banking. He was previously Chief Financial Officer of Pan-Ocean Energy Corporation Limited, formerly a TSX-listed international oil and gas company. Mr. Wynne made a significant contribution to Pan-Ocean's growth from a 400 boe/d and $50 million micro-cap company to a 20,000 boe/d full-cycle independent producer which was sold in September 2006 for CDN$ 1.6 billion.

Mr. James N. Smith, MSc. is a resident of Reading, UK and is a senior oil & gas executive with a strong earth science background. Mr. Smith has over 20 years experience in the oil and gas industry, predominantly in Africa and Middle East exploration. He is currently Vice President Exploration and Director of Orca Exploration Ltd., an international oil and gas company listed on the TSX venture exchange. He previously served as New Venture and Project Leader for Chevron Corporation in Africa and the Middle East and more recently was Vice President Exploration of Pan-Ocean Energy Corporation Limited. At PanOcean, he was instrumental in the rapid development of the company's portfolio of onshore and offshore oil assets in Gabon that was sold in 2006.

Outlook

The Company is in a strong financial position with zero debt, working capital of US$24.8 and positive funds from operations. The Company is forecasting reducing capital expenditures to US$27 - 30 million over the next nine to 12 months considering the current adverse market conditions. The Company has the flexibility, with the limited availability of capital, to increase or decrease capital expenditures as dictated by the market conditions. The reference price of Bonny Light Crude oil averaged a high of US$137.97 in July to a low of US$91.67 in September. The Company continues to receive a premium of US$4-6 per barrel on the average Bonny Light price paid in India. The current commodity market is trading in the US$50 - 60 range in November, 2008. If the commodity markets stabilize the Company is in an excellent position with a large inventory of both development and exploration prospects in northeast India, a strong balance sheet and a transparent path to production growth in the upcoming year.

Common shares of Canoro trade on the TSX Venture Exchange under the symbol 'CNS'.

This news release contains certain forward-looking statements, including management's assessment of future plans and operations, and capital expenditures and the timing thereof, that involve substantial known and unknown risks and uncertainties, certain of which are beyond Canoro's control. Such risks and uncertainties include, without limitation, risks associated with oil and gas exploration, development, exploitation, production, marketing and transportation, loss of markets, volatility of commodity prices, currency fluctuations, imprecision of reserve estimates, environmental risks, competition from other producers, inability to retain drilling rigs and other services, delays resulting from or inability to obtain required regulatory approvals and ability to access sufficient capital from internal and external sources, the impact of general economic conditions in Canada, the United States and overseas, industry conditions, changes in laws and regulations (including the adoption of new environmental laws and regulations) and changes in how they are interpreted and enforced, increased competition, the lack of availability of qualified personnel or management, fluctuations in foreign exchange or interest rates, stock market volatility and market valuations of companies with respect to announced transactions and the final valuations thereof, and obtaining required approvals of regulatory authorities. Canoro's actual results, performance or achievements could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurances can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do so, what benefits, including the amount of proceeds, that Canoro will derive therefrom. Readers are cautioned that the foregoing list of factors is not exhaustive. All subsequent forward-looking statements, whether written or oral, attributable to Canoro or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. Furthermore, the forward-looking statements contained in this news release are made as at the date of this news release and Canoro does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

Non-GAAP terms

The Press Release contains the terms "funds from operations", and "netbacks" which are not recognized measures under Canadian generally accepted accounting principles. The Company uses these measures to help evaluate its performance. Management considers netbacks an important measure as it demonstrates its profitability relative to current commodity prices. Management uses funds from operations to analyze performance and considers it a key measure as it demonstrates the Company's ability to generate the cash necessary to fund future capital investments and to repay debt. Funds from operations has been defined by the Company as net earnings adjusted for non-cash items (depletion, depreciation and accretion, stock-based compensation, unrealized (gain)/loss on foreign exchange, and unrealized investment (gain)/loss) and excludes the change in non-cash working capital related to operating activities and expenditures on asset retirement obligations and reclamation. Canoro's determination of funds from operations may not be comparable to that reported by other companies nor should it be viewed as an alternative to cash flow from operating activities, net earnings or other measures of financial performance calculated in accordance with Canadian GAAP.

Barrel of oil equivalent

Where amounts are expressed on a barrel of oil equivalent (boe) basis, natural gas volumes have been converted to barrels of oil equivalent at six thousand cubic feet to one barrel of oil equivalent (6 mcf = 1 boe). This conversion ratio is the convention used in the oil and natural gas industry and is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. The use of boe's may be misleading, particularly if used in isolation.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this News Release.

Contact Information

  • Canoro Resources Ltd.
    S. Brian Gieni
    Vice President, Finance & CFO
    (403) 543-5742
    (403) 543-5740 (FAX)
    or
    Canoro Resources Ltd.
    Les Kondratoff
    President & CEO
    (403) 543-5741
    (403) 543-5740 (FAX)
    or
    Canoro Resources Ltd.
    700, 717 - 7th Ave SW
    Calgary, Alberta T2P 0Z3
    CANADA
    Website: www.canoro.com